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United Kingdom

United Kingdom

REGULATORS RELENTLESS ON PRICE

Prices in the next round of the UK's Non Fossil Fuel Obligation (NFFO-4) will be even lower than they were in the last round, believes the country's Electricity Regulator Stephen Littlechild. Speaking to the Parliamentary Renewable and Sustainable Energy Group at the House of Commons, Westminster, he gave his views on how far NFFO-4 projects will converge with the market price for electricity.

He emphasised that NFFO-3 prices give renewable developers a clear indication of the targets to aim for when they bid their schemes into NFFO-4. Average contract prices for wind in the previous round of renewables support were £0.0432 for larger wind farms and £0.0529 for small schemes. "At this stage one cannot predict what NFFO-4 prices will be," he said.

Nevertheless, he gave a clear hint of his views on the likely levels of successful bid prices in the next round. He takes as a guide the halfway point between the highest contracted prices under the previous order and the trading price in the Electricity Pool for England and Wales -- currently around £0.026/kWh. "I would simply observe that if the gap between NFFO-3 prices and the pool price were to be halved, then bid prices would need to beat 3.3 pence for landfill gas and waste, 3.7 pence for hydro and large wind schemes, 4.3 pence for small wind schemes and 5.6 pence for energy crops."

The high turn-out to hear Littlechild's views reflected how price convergence is uppermost in the minds of the renewables industry. During his discussion with the group -- consisting of Members of Parliament and industry representatives, Littlechild came under fire from the audience over a variety of issues. Challenged over his preference for the average pool price as a yardstick for market price, he stuck to his guns. Although conceding there are other definitions that could be used, he claimed that the pool price is the one publicly observable measure of market price.

The government's obsession with convergence with the market price at the expense of recognising the benefits of renewable energy was a recurring concern at the meeting. Littlechild considered that putting a value on environmental benefits was too difficult. But he was more sympathetic to the value of embedded generation to local electricity networks being rewarded. He said he wanted to explore this possibility in some areas where the output of the generating schemes was worth more. Looking to the future beyond liberalisation of the UK electricity market in 1998, he claimed to be "not as pessimistic" as some industry observers about the ability of renewables to survive unaided in the market after a few more years.

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